Back to Reality: Modi’s Rhetoric on Protectionism and India’s 2018 Budget

During Prime Minister Narendra Modi’s recent address at the World Economic Forum in Davos, Switzerland, he issued a strong message against protectionism, warning these tendencies can be just as dangerous as terrorism. AFTI members agree: the key to economic growth and development is not isolation. World leaders must embrace open and fair trade and investment policies that promote innovation and competition.

Since Prime Minister Modi took office in 2014, he has talked openly of plans to position India as a strong, emerging economy, ripe for investment and embracing the global economy. AFTI members have seen some progress in that direction, including investment openings in various sectors, streamlining some of India’s onerous licensing and government approval processes and working to eliminate burdensome, non-transparent customs and border practices.

To achieve Modi’s soaring rhetoric, however, India must move faster and take more ambitious steps to open its economy and tackle longstanding barriers that have blocked trade and investment flows and hampered India’s growth and development. Moreover, India must resist the temptation to backslide towards protectionist trade policies. Developments just last month provide good examples  of how India is not backing up its rhetoric with reality.

On February 1, Indian Finance Minister Arun Jaitley announced India’s 2018-2019 budget, an announcement praised by Prime Minister Modi as “farmer friendly, common citizen friendly, business environment friendly and development friendly.” Yet the budget proposed significant increases in import tariffs on a range of products, including perfume, toys, auto parts, furniture and cellular phones in an attempt to promote local manufacturing under the “Make in India” initiative. The move doubles down on a protectionist approach to tariffs and trade, raising questions about whether the proposed tariffs violate India’s commitments under the World Trade Organization and other agreements.  On February 12, the Indian government further reinforced this protectionist trend when it imposed even deeper price cuts on innovative coronary stents and signaled further price controls that harm U.S. exports of innovative medical device products.

These moves also mirror longstanding protectionist policies that continue to challenge foreign businesses and investors. For example, India also continues to implement forced localization measures, such as promoting local manufacturing in the information technology and solar energy sectors. For example, India’s roadmap for the development of critical Internet of Things (“IOT”) technologies aims to have local manufacturers produce 60 percent of information and communication technology products procured by the Indian public sector by 2017, rising to 80 percent in 2020. These challenges supplement longstanding challenges that innovative U.S. companies have with market access and meaningful enforcement of intellectual property rights in India, as AFTI recently highlighted in a submission to the Office of the U.S. Trade Representative.

These challenges not only hurt U.S. companies, but also hurt the Indian economy and consumers. These can have an important impact on investment: for example, foreign medical technology investment in India took a nose dive in 2017 as a result of  price controls.  According to a report by the U.S. International Trade Commission, if India were to level the playing field and match American standards on tariffs, investment, and IPR, U.S. exports to India would rise by two-thirds. A more open and robust trade relationship between the U.S. and India would boost jobs and innovation in both countries.

In order for India to truly become a world leader and economic powerhouse, Prime Minister Modi must lead against protectionism at home as well as abroad. Our countries and our leaders must work together to eliminate excessively high tariffs and other protectionist barriers hindering the relationship from reaching its full economic potential.